Page 8 - FSUOGM Week 16

FSUOGM INVESTMENT FSUOGM
Chevron completes Azerbaijan exit
AZERBAIJAN
Under current prices, the deal overvalues the asset.
US major Chevron has closed the sale of its stake in the Azeri-Chirag-Gunashli (ACG) fields in Azerbaijan to Hungary’s MOL, fetching $1.57bn.
The sale covers Chevron’s 9.57% interest in the BP-operated Caspian Sea project, which accounts for over 70% of Azerbaijan’s oil out- put, as well as in the Western Export Route pipeline that delivers its supplies to the Black Sea. It also includes the company’s 8.9% stake in the Baku-Tbilisi-Ceyhan (BTC) pipeline that pumps ACG’s oil to the Mediterranean shore.
The transaction draws a line under Chevron’s more than two and a half decades of working in Azerbaijan. The deal is timely, providing the US firm with precious capital to shore up its finances in the face of the unprecedented collapse in oil demand.
Chevron is heavily exposed to the US shale industry, which is reeling from the impact of low prices. The company announced a 20% cut in capital expenditure in late March to $16bn, while also targeting a $1bn reduction in oper- ational spending.
Fortunately for Chevron, the terms of the deal were negotiated last year, when the oil mar- ket outlook was far brighter. In today’s market conditions, the sale overvalues the asset. It brings Chevron one step closer to completing its three- year divestment plan, aimed at shedding up to $10bn of assets by the end of 2020.
Despite paying a premium to current mar- ket rates, MOL will gain a lucrative slice of ACG’s low-cost production. The deal has been
backdated to January 1, 2019, netting the Hun- garian firm 20,000 barrels per day (bpd) of out- put from last year.
ACG is a mature project, but its shareholders have already committed investments to slow the rate of its production decline over the coming years. This includes the $6bn construction of a seventh platform, due to add 100,000 bpd of pro- duction at peak in the mid-2020s. ACG flowed 535,000 bpd of oil last year.
The sale also comes as Azerbaijan prepares to scale back its oil supply drastically in order to meet its commitments under OPEC+’s land- mark agreement on cutting global oil supply. The country has pledged to reduce output to 554,000 bpd in May and June, down from 763,900 bpd in March.
ACG’s oil is cheap thanks to the project’s economies of scale, and so Azerbaijan is likely to apply the bulk of the cuts to higher-cost pro- jects instead, such as mature deposits operated by its national oil company (NOC) SOCAR. Any reduction in ACG’s output would require the consent of its shareholders. BP has a 30.1% stake in the fields, while its other investors include SOCAR with 25%, Japan’s Inpex and Itochu with 9.3% and 3.7% respectively, Norway’s Equinor with 7.3%, ExxonMobil with 6.8%, Turkish Petroleum with 5.7% and India’s ONGC Videsh Ltd (OVL) with 2.3%.
Exxon was also rumoured to be seeking a sale last year, but is unlikely to cut a deal before the market stabilises. ™
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w w w . N E W S B A S E . c o m Week 16 23•April•2020